Makinginnovationmore

I've been thinking a lot about the challenges that midsized and larger companies face when trying to do more innovation. It's not a secret that they need to do more innovation; everyone knows this.  It's not really a secret what innovation is, or what the potential benefits might look like.  We've seen the results of good innovation in the marketplace.  It's not that people are stupid and don't understand how to innovate, although many are more comfortable with existing methods and tools, and haven't been trained in new innovation tools or perspectives.  But training and tool introduction isn't a major barrier.

No, the recurring theme of failing to innovate in a corporate setting has more to do with the failure to find things and discover things.  I'd like to address what you need to find and discover, because if we can name the barriers or challenges, we may be able to eliminate them and accelerate innovation.

What do you need to find in order to innovate?

• The right problem or opportunity.  You've got to be solving an important problem or addressing an interesting opportunity, which means you've got to find the right opportunity or challenge.  This means you've got to align innovation to strategic needs and gaps that can't be addressed with standard tools.
• The time you need.  Probably the biggest gap in corporate innovation is finding the time to actually conduct innovation the way it should be conducted, rather than adding it on to a team's other responsibilities or trying to shorten the activity to the point where innovation is simply abbreviated and useless.
• The people you need.  This challenge in in multiple parts, because you need interested, creative, divergent people to create ideas, and you need capable, connected people to convert ideas into products and services.  Your company probably lacks the former, and the latter are very busy (see time you need).
• A sponsor or champion.  In reality, you can innovate or work on an opportunity or problem all day long, but it won't go anywhere until some executive decides it is important or useful to them.  This means you need an engaged champion or sponsor, because you'll probably need to overcome objections and re-prioritize work.
• What customers think they need.  Rather than simply create new innovations based on your technologies or capabilities, you need to find out what customers want and expect - even project what they are going to want or need in the near future. 
• What the existing expectations and platforms are.  As we progress and products and services become more integrated, creating a discrete product or service that ignores the existing platforms and ecosystems is a recipe for failure.  You've got to find out what critical existing platforms and services exist and how you work with them to add value. 

 As Heinlein and others have said, TANSTAAFL.  There ain't no such thing as a free lunch.  You want to innovate, you say?  You need the ability, time and passion to find or discover all of these things.  Which is why innovation seems so daunting.  Doing your everyday job, meeting or exceeding expectations making existing products doesn't require you or your company do discover or find much of anything.  Innovation is new, real work, and new, real work that your team isn't familiar with.

If finding and discovery are so important to innovation, why do corporations and their staff do such a poor job finding and discovering?

1. Finding and discovering aren't part of the normal job description.  Most people are paid, and paid well, to do the same things over and over again, and doing them more efficiently.  They aren't paid to find things, search for unknown information or embark on a voyage of discovery.  That's...
2. R&D's job.  Most corporations believe that finding and discovering belongs to R&D, while everyone else should be focused on efficient delivery of what they know.  However, given the depth and breadth of innovation, R&D can't be the only group finding and discovering.
3. Finding and discovering requires admitting that you don't know.  We pay people for expertise.  Asking them to find and discover new information means admitting they don't know, and that good ideas or information may be "out there".  This means that existing expertise may not be as valuable as new discovery.
4. Time is a limiting factor.  Doing the same things more efficiently takes an ever-decreasing amount of time.  Looking, experimenting, finding, discovering and exploring aren't straightforward or predictable, and worse may not result in good ideas or information.  In a time constrained environment, seeking and finding is limited.
5. The fear of what you may discover.  If we can find time to discover and explore, we may not like what we find.  You may find information that suggests your core capabilities are about to be swept away.  You may find that emerging needs don't align to your strengths.  Do you have the stomach to hear and understand what your teams discover?

These, and of course other reasons, are why so much emphasis is placed on incremental innovation, because incremental innovation requires so little true discovery.

Becoming innovative requires becoming a discoverer

So you say you want more innovation?  We've talked and written and philosophized about the need for cultural change.  Here's a place to start:  how much time is given over to finding and discovering new needs?  How much exploration is allowed?  If innovation is about finding new needs and emerging customer segments, and finding new solutions, then doing innovation will require creating an environment where finding, discovery, exploration and other less than efficient and quantifiable activities aren't just countenanced, they are encouraged and embraced.

This takes a different kind of thinking and often a different kind of person.  Columbus didn't discover America because he was bound by current map thinking.  He was interesting in exploration and discovery.  Moreover, he's a good example of an innovator, because he did explore, he did test a hypothesis and did discover something - something of value, but not what he originally set out to do.  Turns out it worked out well for his backers.  You don't just need to provide time and space to explore and discover, you may need to find new people who are willing to do so, when everyone else says they'll sail off the map.

The more we learn, the more we discover that innovation is vital to renew businesses of all sizes.  Those that undertake significant innovation activities seem to grow and prosper.  Those that neglect innovation seem to wither away.  Executives understand this.  More importantly, markets understand this.  And when markets understand and signal something, executives get on board.  Innovation, therefore, is an important component of future success of many companies, and executives understand this.  That's the good news.

The bad news is that while the expectations and demands for innovation grow ever larger, the capabilities to conduct successful innovation haven't grown nearly as fast.  In fact the knowing/doing gap for innovation in major corporations is probably the largest its ever been.  People in the trenches simply don't have the time or the training to conduct anything more than incremental innovation.  Corporate reward systems, culture, inertia and a host of other factors simply resist taking big chances.

Which means that a yawning void is opening up - between the demands and expectations of consumers, executives and markets on one side, and the skills, capabilities and bandwidth of staff, employees and managers of those firms on the other.  This void is growing and something will fill it.  We know that nature abhors a vacuum, so something that cannot stand will not stand.

The real question now is:  what will fill that gap?  I think there are three possibilities:

1. Rapidly emerging startups and entrepreneurs, especially in data or information intensive industries
2. Existing companies from adjacent spaces
3. Consulting firms filling the void for larger corporations

Let's look at what happens when each attempt to fill this growing void.

A startup does what you should have done

In many cases, companies recognize the need for innovation, and can even imagine what a new product or solution should look like, but for many reasons simply cannot find the time, permission or funding to create a new solution to fill the customer need or emerging opportunity.

Since nature abhors a vacuum, and there's economic opportunity in filling the gap, others step in.  In this case an entrepreneurial firm or a startup does what a larger firm should have done.  This isn't always a negative outcome for a larger firm willing to allow some experimentation by smaller firms if the larger firm is watchful and able to acquire the smaller firms that succeed.  While this is often the stated strategy, it rarely plays out that way because the smaller firm may gain traction quickly (and become too expensive to acquire) or the larger firm may acquire the smaller company and impose the bureaucracy and overhead that kept it from competing in the first place.

Adjacent Entrants

Most truly disruptive innovation happens when capable companies provide services to customers, need or opportunities that were just adjacent to their existing businesses - sometimes even in the same business with different business models.  NetFlix was adjacent to Blockbuster: both offered movie rentals but with different models.  Apple entered the music distribution business and disrupted Tower Records.  True disruption will most likely occur when a larger, more capable firm (more capable and more scalable than a startup) enters a market that slow incumbents ignore or overlook.  Once this happens the opportunity is often lost for good.  The incumbents cannot acquire an equal sized competitor and therefore lose the market opportunity.

Consulting firms bridge the void

Which leaves us with the option most large companies choose:  identifying a consulting company to understand the need, design and build a solution while the larger incumbent sustains the status quo.  This strategy may fill the opportunity in the short run, if filling the opportunity is defined as delivering a discrete product or service.  However, since the incumbent often isn't involved in the research or development of the solution, and doesn't work to integrate the solution into its suite of services, and further doesn't understand the total customer experience, this solution works to plug a gap in the short run but undermines the incumbent in the long run, because the incumbent cannot incorporate the solution or even fully grasp the opportunity, because inevitably the need or opportunity is larger than one product or service.

So, what's left?

We've explored three potential alternatives to the growing knowing/doing gap.  Hopefully I've convinced you that none of these alternatives is really a long term solution.  At best they are short term gap fillers, at worst they sacrifice an opportunity to an aggressive adjacent competitor.  What is actually needed is a cultural shift.  For too long large companies have focused on efficiency and at best incremental innovation.  Their cultures, structures, hierarchy, reward and recognition programs and other attributes are all aligned to efficiency, business as usual and incremental innovation. While the demands for more interesting, more diverse and more disruptive innovation continue to grow, the amount of focus, skill and experience in doing and delivering actual innovation hasn't changed much at all.  This is a growing gap, becoming a void, that will become a vacuum.  And we know what happens when nature identifies a vacuum - it gets filled.


I wrote a piece recently that suggested you could tell if your CEO was earnest in his or her desire to create more innovation.  To do that you could simply examine if the CEO was focused on cultural change to encourage more risk, more uncertainty and more innovation.  If the CEO expects innovation to be important to deliver new products, new services, new revenue and new profits, then he or she will engage in activities that first seek to change the culture.  Otherwise the knowing/doing gap will only increase, and others will have the chance to fill the void.

Last week I attended an interesting program co-sponsored by the University of North Carolina's health care innovation program and AARP.  The program was set up to bring together people who had an interest in solving problems relating to prescription drug use.  Far too many people are prescribed medications but don't fill the prescription or don't use the medications as prescribed.

The program bought together people from different universities, different industries and other organizations to try to generate ideas around solving the issue of non-compliance.  More interestingly, the organizers hoped that there would be enough interest and passion in the group that teams would form to consider methods or technologies that could address the problem.

It's clear that these kinds of "sprints" are growing in importance, and interesting when you consider that some of the teams that form are formed on the fly, built of people from different organizations.  Most of the people in attendance were there because they have an interest in helping improve medical prescriptions and use, which could lead to better health outcomes.  In other words, the attendees had a passion for solving the problem and to a great extent were mentally and emotionally engaged and intrinsically motivated.  As we know, these conditions are important for innovation in any setting.

But what really struck me about the event was the set up by knowledgeable experts.  The event was kicked off by folks from UNC who described the breadth and depth of the problem.  Non-compliance and non-adherence to drug prescriptions is a problem with a price tag estimated at over $300 billion per year.  A medical doctor described some of the challenges that patients face and the difficulties of understanding what people are currently taking, drug interactions as new medications are prescribed, and the lack of continuity as patients go home and either follow the prescribed medical path or fail to continue.

In other words, the people who have the problem are educating an innovation team of passionate volunteers.

Imagine a world...

Watching this unfold got me thinking.  We're doing corporate innovation all wrong, and the innovation sprint that UNC and AARP were conducting have got it right.  They have the ingredients correct and the order of activities correct.  Let's imagine for a second what this would look like in a corporate setting.

In a corporate setting today, executives intent on running the business day to day are occasionally interrupted and asked to weigh in on ideas that were generated by people throughout the business.  Since strategy isn't all that well communicated, the ideas that bubble up are rarely aligned to important needs or goals, and are often simply distractions to day to day efficient operations.  There's little engagement or buy-in on any side, and innovators have to plead for executives' time.

Now, imagine we can implement in a corporation what UNC and AARP implemented in a sprint.  In this powerful but so far imaginary case, executives present their most important needs and goals, the ones they simply cannot solve with existing tools, to a motivated group of innovators collected from across the organization.  The executive presents the problem, provides background and asks the innovators for help.  The innovators, who are capable and passionate people drawn from across the organization, review the problems and needs from several executives and choose which one to work on, moving quickly into a defined innovation process.

• Rather than view innovators as distractions, executives should view innovators as a powerful resource that should be used effectively. 
• Rather than having to "bubble up" ideas to executives, innovators should have important problems presented to them, that they can choose to solve if it meets their passion and interest
• Rather than conduct innovation in out of the way places or under cover, we can conduct it out in the open, acknowledging that existing tools and methods don't address all the growth needs or concerns.
• Rather than treat innovation as a sideline, we can incorporate innovation as simply another valuable tool to help achieve strategic stretch goals.

What stands in the way

Of course this story I'm telling has a lot of potential barriers.  Few executives will agree to take the time, or to even admit, that there are business needs or challenges that they need help solving.  Few companies are going to allow employees to simply drop their day to day work and contribute to innovation projects based on their passion and interest.  But what if we turned this unwieldy innovation process on its head? What if executives could communicate their strategies and needs, and could adequately communicate and frame the innovation activities they need?  What if employees could spend time on projects based on their interest and passion?  What if executives had to "pitch" their needs to innovators who could choose where to spend their time, rather than attempt to present ideas to distracted and often disinterested executives?

Yes, this reverses a lot of the power structure that exists, gives power and decision making to self-organized innovation teams rather than embed decision making with one or more executives.  It would force executives to think more clearly about their businesses and be able to distinguish what they can deliver with existing methods and tools, and what needs and gaps they have that cannot be filled by existing tools.  It would require executives to demonstrate how solving a challenge or problem is good for the company, good for the customer and good for the innovator.

Why the sprint works and what businesses can learn

The sprint works because everyone who attended the event is there on their own time.  The audience showed up, ready to help because they care about health care, or they believe they can create new solutions to solve an important problem.  They showed up because they know that the people who convened the sprint, UNC and AARP, can frame the challenges effectively and communicate solutions to organizations that can scale up good ideas.  The people who attended were intrinsically motivated (yes, there is some small payment for the best solution or idea, but nothing compared to the investment).  They have passion for the industry and the need, they are engaged, and they are properly prepared by understanding the challenges in the industry.

If AAPR and UNC can get 100 people to show up for pizza and soda for several hours of their own time, why can't businesses do a better job sponsoring innovation and tapping into the wealth of ideas and energy of their own people?

In what should come as no surprise to many of us working in the innovation space, a McKinsey study revealed in October 2016 that 84% of CEOs think innovation is important for their growth.  This is not new news and is actually a substantial increase from previous surveys conducted by BCG and others, where the numbers routinely suggested that anywhere from 66% to 75% of CEOs thought innovation was important.  The real news that McKinsey released has to do with results.  In the same survey McKinsey found that 6% of CEOs felt that their innovation efforts were satisfactory.  If the data is true this represents a complete and utter failure of innovation to deliver the value that the CEOs expected.  Even venture capital investors expect a 1 in 7 or at worst a 1 in 10 return.

The 100 Meter High Hurdles

So, clearly we've overcome the first hurdle.  Everyone believes that innovation is important.  The challenge with this first hurdle is that, like the 100 meter high hurdle race in the Olympics, there are a number of other hurdles that need to be cleared before you reach the finish line and celebrate.

The next hurdle, beyond believing innovation is important, is establishing the environment in which innovation can thrive.  Saying you want innovation and that it is an important component is valuable, but useless if we don't change perspectives, behaviors and rewards.  Corporate inertia is far more powerful that occasional pronouncements from on high.  The next hurdle executives must clear if they want more innovation is to change their culture and environment to encourage if not demand innovation.

There are, of course, other hurdles, including training people in new ways of thinking and providing tools that help them think differently, as well as changing compensation and reward structures so that doing innovation is less risky.  Defining what innovation is and what it means is also helpful.

Too often executives don't run the full race.  They clear a hurdle or two and think they've gone the distance.  Innovation is a real commitment not a one off activity.

Perceptions and Expectations

There's another problem, of course, that has to do with realistic expectations.  Everyone looks at Apple and wants to do what Steve Jobs achieved, the growth and profitability.  Yet few companies want to commit the kind of resources and maintain the kind of focus that Jobs had for over a decade.  In 1997 Apple was barely alive, but with the introduction of the iPod and iPhone and iPad he turned it around.  Now it's used as an example of innovation success, but few people really understand the depth of commitment and the lack of options that Apple had.  Executives may be unhappy with innovation, but do they have the right expectations about what innovation can deliver?  More importantly, do they have the right expectations about what their teams can deliver using innovation?  The answer is: probably not.

Reactive or Proactive

The biggest problem most larger companies face is that as they grow larger they become defensive, seeking to lock in market share and protect their customer base.  This leads them to constantly refine existing products and to compete by lowering costs rather than creating new products.  They become reactive and cost/efficiency conscious rather that proactive and innovative.  New entrants can either compete with what the incumbent does well or compete where the incumbent leaves them space.  So new entrants seek to innovate, create new solutions, new packaging, new channels, new experiences that have appeared risky to the incumbent, who is satisfied to let others experiment and believes they can move in after a new solution is proven.  In the old days of slow change that was a reasonable expectation, but not any more.  You can't innovate sometimes and in some places and hold fast in others.  Innovation, once you decide to do it, is a constant, 24x7 exercise where you are expected to lead the pack, not fiddle around the margins.  Too much innovation activity is haphazard and half-hearted, doing something for the sake of saying that they are doing innovation.  It lacks engagement and commitment, which is another reason it often fails to deliver.

Old news, new tribulations


So, the fact that CEOs are unhappy with the results of their innovation activities is old news.  Was true a decade ago and seems to be getting worse.  The real challenge is that the pace of change has actually accelerated.  Autonomous vehicles, AI, robotics and many other factors are becoming realities far more quickly than we anticipated. These and other technology introductions are creating sweeping change.  Add to that increasing globalization and societal shifts and every company faces a rapidly changing market with heightened demands and short attention spans.  Those dissatisfied with their innovation outputs may soon be those who are no longer in business.  Innovation failure may simply become the first sign of a faltering company, rather than a mistake in an otherwise reasonably profitable company.

I've been giving a lot of thought to the concept of waves of history, or periods of change.  For example, not all that long ago a group of workers in England decided to try to stymie change, by destroying the looms that they felt were replacing their jobs.  The "Luddites" as they were called, were afraid of looming (sorry, couldn't pass it up) change and the incumbent shift in jobs and roles as automation replaced manual labor.  I'm oversimplifying here - there were many other factors that led to the Luddite revolt, but a lot of the anger that was displayed was focused on change, and the loss of status and skill.  In that day, people made things.  They prided themselves on their skills and knowledge about how to make things.

From makers of things to providers of services

Over time, we've accepted to some degree industrialization and even automation.  Increasingly we see factory workers here in the US rapidly replaced by machines, robots and artificial intelligence.  Why?  Because the machines and AI can do things repetitively, with so little variance and with so few safety concerns that even though machines cost far more than people initially, they are much less expensive in the long run, and don't need bathroom breaks or time off.   As our markets and capabilities have shifted, so too our focus.  Fifty years ago everyone wanted to be an engineer - to build stuff.   Today most college graduates want to be in finance or service industries.  Today we pride ourselves on making software, providing services, and moving money.  These are the winning attributes in the US economy.  But what happens when computers and AI do these jobs better than we do?  Certainly software and AI can write software, and the new craze in the financial world is using software and AI to manage money and make investments.  Will there be a Luddite-like revolution in the next decade as programmers and financial analysts suddenly rage against the machine?  And why not?  These are important, valuable and meaningful jobs that you can expect to be replaced in the next decade.

The next big wave

What will be left?  If we aren't makers of things or makers of services or developers of software or movers of money, what are the important, irreplaceable jobs that humans can fill and gain satisfaction from?  I should note here that there will always be jobs for makers (see Etsy if you don't believe that) but those jobs will rarely scale.  There will always be jobs for people willing to provide services, after all you can't outsource a haircut or get a robot to mow your grass - yet.  But as we look to the future we can see a significant amount of automation, increasing use of robots, the use of artificial intelligence and much more.  What happens to Uber drivers when autonomous cars drive us around?  And who is exploring this if not Uber themselves?

What's left for humans in this rather dire scenario, where jobs are outsourced not to other countries but to automation, AI, robots and machines?

Toffler and others predicted the future in books like Future Shock and Third Wave.  I think we are in a third wave, moving from makers of things to makers of services and experiences to makers of ideas.  The future belongs to those who can create and translate new insights and ideas into concepts that AI or machines can create and package as products or services.

We need to be doing these things now

If this view of the future holds any water, then it has some interesting implications.

First, it suggests that we need to completely rethink our educational system.  Our educational system was created to place reasonably competent workers with a broad but not necessarily deep set of skills on a production line or as middle managers.  What's going to be required in a third wave world of making and creating insights and ideas is less rigid conformance to the right answers and much more diversity and creativity of thought.  We are generating plenty of graduates with exactly the worse preparation for the emerging work world.  We need to be encouraging creativity, exploration and divergent thinking.  Instead we are muting creativity for conformity when we need to empower everyone to build creative skills.

Second, creative businesses don't need to scale as far or as rapidly as industrial companies, so we may need to rethink what it means to "build a business" as we become makers of ideas that are then scaled by AI, robots or machines.  In an idea maker world, we might have thousands of small boutique organizations surrounding fixed infrastructure that actually makes and scales creativity and ideas.  Humans can do what we were actually always primed to do - think and create - rather than lift and toil.  In a sense we are almost already there in some industries.  Entertainment has already entered this model, where almost anyone with a good idea and access to the internet can become an overnight sensation.  With a relatively simple camera, the ability to post to Youtube and the power of social media to connect to thousands or millions of viewers, it's easy for an entertainer or idea to spread quickly, at least where entertainment is concerned. What happens when we have other platforms that can quickly scale other types of ideas?

Third, we need to completely rethink and reform how we capture, manage and protect intellectual property.  The ideas these makers create need to be managed and protected.  In the future we'll need to extract more value from our ideas than from selling products and services.  Our current Patent and Trademark office is already overwhelmed by the number and diversity of ideas, and we can expect it to get worse.  Plus, the model is biased toward companies with deeper pockets that can afford to patent a lot of ideas and then sit on those patents, warding off competition.  Developing and obtaining a patent or trademark as a smaller company is difficult, and growing more time consuming and frustrating as the number of ideas and intellectual property grows.  A significant reset is in order - one that encourages more ideas and provides good protection at a fair price and is accessible to more inventors.

Fourth, larger companies will have to change corporate culture to identify and recognize the best ideas regardless of their origin.  The real test will selecting and implementing ideas that are the most valuable regardless of their origin.  Currently few companies are aggressively identifying and evaluating ideas and intellectual property that originate outside their four walls.  As more and more people become idea makers as opposed to thing makers, the wealth of ideas and intellectual property externally will be almost impossible to ignore.

What should the next generation do?

Whether you decide your best role is within a large company or as a contributor to a small company or the best alternative is simply to go it alone, the most valuable roles in the future will not be found in routine, day to day work that can be automated, or in pattern recognition or matching.  As Dan Pink has said, anything that can be automated or reduced to a consistent pattern will be automated.  The real question is: what roles are left for people to fill?  What can we do that machines and AI can't do well today?  We've got to become better at creating ideas, spotting the best ones and rapidly converting them into new products.  Speed, insight, innovation and agility are what will win in the future.

Find a company that incorporates and encourages creative thinking, is agile and can quickly adapt to rapidly changing market needs and expectations, that is in a business that values people and where the work can't be reduced to an algorithm.  Or, better yet, create your own company that is really good at discovering needs, creating solutions and defining and protecting intellectual property.  This is the third wave of human value creation.  Become a maker of ideas.